BCBS Proposes Changes to Core Principles for Effective Banking Supervision

The Basel Committee on Banking Supervision ("BCBS") proposed amendments to its Core Principles for Effective Banking Supervision in response to recent global financial developments and emerging risks.

In a Consultative Document released by the Bank for International Settlements, BCBS proposed revisions to its Core Principles on:

• Financial Risks. BCBS proposed amendments including (i) implementing a complementary non-risk based measure for constraining leverage, (ii) placing greater emphasis on risk management practices, (iii) accounting for the introduction of expected credit loss provisions and the potential impact of customer behaviors on interest rate risk assumptions and (iv) aligning the definition of connected counterparties and large exposure limits with BCBS’s large exposure framework.
• Operational Resilience. BCBS proposed amendments focused on "governance, operational risk management, business continuity planning and testing, mapping of interconnections and interdependencies, third-party dependency management, incident management, and resilient cyber security and information and communication technology."
• Systemic Risk. Among other things, BCBS proposed amendments relating to macroprudential policy and supervision.
• Climate and Digitalization-related Risks. BCBS proposed requiring supervisors to consider climate-related financial risks in their supervisory methodologies, and emphasized the importance of operational resilience due to banks’ increasing reliance on third parties for technology services.
• Nonbank Financial Intermediation. BCBS proposed amending expectations for supervisors to monitor for risks arising from the proliferation of nonbank financial institutions and advances in financial technology.
• Risk Management. BCBS proposed amendments that would (i) set standards for "corporate culture and values," (ii) implement a minimum definition for transactions with related parties, (iii) improve disclosure and (iv) raise AML standards.

Comments on the proposed amendments must be submitted by October 6, 2023.